You are correct in relation to Provision for Expected Credit Loss ("ECL").
AASB 9 requires a forecast of lifetime expected credit losses that uses a three-staged approach based on the credit profile of the receivable.
WZR calculates ECL using three main components
1. the exposure at default
2. the probability of default and:
3. the loss given default.
Can you explain your comment:
"So as the loan book grows quickly, so too does the $ amount they need to report as expected credit losses - whereas if & when the loan book growth does slow, so should the provisions (leading to vastly better profitability at that time)."
Wouldn't we want loan book growth to continue for as long as they can keep taking market share?
Wouldn't reducing the Provision for ECL drive profitability instead of slowing loan book growth? This would be achieved by getting control of the 3 components listed above.
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